Wihlborgs Fastigheter AB

STO:WIHL

Earnings Call Transcript 2023-Q1

[Operator]

Welcome to the Wihlborgs Fastigheter Q1 2023 Conference Call. [Operator Instructions]

Now I will hand the conference over to the speakers, CEO, Ulrika Hallengren; CFO, Arvid Liepe, Please go ahead.

[Ulrika Hallengren, executive]

Welcome to the presentation of Wihlborgs' Q1 '23. You all know that we love stability, and that we will do everything we can to avoid drama. We know that we, in these times, must work even harder in our core business to offset higher financial costs. And it's a privilege to work hard in a company that continues to deliver new records for earnings and constantly continues to develop the business bit by bit, day after day. So we work hard and we love our cash flow.

Let's go to our report. In a summary of Q1, we have record high rental income plus 22%, operating surplus plus 20%, positive net letting, increased occupancy rate, higher financial costs. We continue with a stable balance sheet access to liquid funds and by that we can also continue to invest for the future. And the results for the first quarter, rental income increased as mentioned by 22% to SEK 971 million the operating surplus increased by 20% to SEK 667 million, and income from property management decreased by 2% to SEK 457 million. The result for the period amounts to SEK 255 million which corresponds to SEK 0.83 per share. EPRA NRV increased to SEK 92.08 per share, plus 7% adjusted for paid dividends.

And a comparison of the rental income between Q1 '22 and Q1 '23. We have acquisition contributed plus SEK 47 million, currency effects plus SEK 12 million, indexation plus SEK 76 million, supplementary billing increased by SEK 29 million and other increase from complemented projects, new leases and renegotiations plus SEK 12 million. The canteens in Denmark were outsourced from the 1st of March, that will lower our income but also our costs.

We have signed new leases for the last quarter of SEK 77 million and the positive net letting for the quarter is SEK 6 million, rather high activity than the opposite, which is a good thing. We see examples of new leases with BTJ and Klaravik in Lund and also companies that have decided to be more efficient like Ericsson, also in Lund, where we now have a longer lease for the largest area and the termination of 1,000 square meters. Good for us all to know what applies going forward and really good that they will stay with us for several years to come. We also know that a number of terminations are from customers that just want to make some changes, and I'm sure that some of them will sign new leases with us again. If I see any kind of trend in demand, so it's for more high quality, a bit of efficiency and no trend that clients are leaving us.

Here are some of our new tenants that we have signed during Q1. As usual, it's a mix of different segments. The largest leases is with governmental tenants but important also with Renta and Rollco in Helsingborg where we will build new premises for them. Here, we have the net letting in a historical perspective, letting in light green ratio in light blue and dark blue stacks are the net letting. Now 32 positive quarters in a row and only 1 quarter with a negative number for over 40 years. We will do everything we can to continue like this, but let's keep in mind that the quarter is quite a short period.

And here is the net letting summarized for a rolling 12-month period. And let's keep in mind that all of the positive net letting does not yet show in our performance. This is our future income. A list of our 10 largest tenants in alphabetic order, Trygg-Hansa is new on the list. All these tenants are strong customers, and they contribute with 20% of our rental income. 7 out of 10 are governmental tenants and rental income from public tenants in total is 24%, and they contribute to long-term stability in our cash flow.

Rental value as of 1st of April is SEK 4,191 million per year, and the rental income is SEK 3,860 million, plus 21.8%. A good part is, of course, indexation, but the rest of this is a good signal of growth. Partly a result of our successful project portfolio, but also being close to the market, knowing our tenants and also willing to make room for their growth and demand for upgrading their workspace.

And looking for like-for-like figures, we can see that rental value is up plus 10.9% and rental income is up 12.9%. So rental income, again, beats our ambition to exceed index by at least a percentage point. A part in the strong figure for rental income like-for-like is higher occupancy by 1.7%, also a very good number. The value of the portfolio has developed, as you can see on this slide, since 2005 without raising any new capital and lately not with any help from lower yields.

Look at the change in market value of our properties. We started the year with SEK 55,179 million in accordance with our external valuation, which once a year values 100% of the stock at the same time. That was in Q4 as every year. We have acquisitions of SEK 20 million invested EUR 391 million, valuation amounts to minus SEK 28 million. And together with currency translation of SEK 139 million, that summarized to SEK 55,701 million. No larger changes in market factors that affect the valuation. We started to raise the valuation yield in Q2 last year and continued in Q3 and Q4. We have had some product gains and, of course, a positive impact from new leases.

If we take a look into our portfolio, we can see some figures about ongoing business right now. The occupancy rate is up to 94%, excluding projects and land and with an operating surplus of SEK 2,968 million that gives a running yield of 5.6%. Total value of the portfolio is SEK 55,701 million, as mentioned before. And we will keep pointing out that this running yield is not the same as valuation yield. Maybe you can say that we actually perform better in our portfolio than our appraiser's expectations. In the valuation method, there are, for example, calculation models for future vacancies, but we work with our properties so that vacancy should stay down.

When our vacancy increased in the property stock, it's usually because we have bought something with vacancy or emptied a property to create vacancy for development. This is a way to grow. If we go to the office portfolio, the market value is now SEK 46,455 million and overall, the occupancy rate is 94%. It's 95% in Malmo, 91% in Helsingborg, 94% in Lund and 95% in Copenhagen.

Improved numbers. Improved occupancy rate is always a joy, but we don't hesitate to create or buy vacancy when we think that is the right thing to do. The operating surplus from offices summarized to SEK 2,520 million and a running yield of 5.4%. Bring stability and resilience when interest rates goes up. The demand for logistics and production continues to be good, but not at record levels, occupancy 92% in Malmo, 89% in Helsingborg, 98% in Lund and 95% in Copenhagen, 91% occupancy rate as a whole with a running yield at 6.7% and a total value of SEK 6,685 million.

A slide of the running yield in the portfolio since 2013, the yield has gone down for several years a bit by bit and up plus 0.6% quite quickly in '22. This shows the effect of our increased earnings capacity in relation to the value set by external appraisers. A catalog of our value and properties in our 4 cities, 40% of the value is in Malmo, 22% in Helsingborg, 16% in Lund and 22% in Copenhagen. Copenhagen has the largest area with 702,000 square meters, but Malmo have a higher value. The value in Copenhagen is also affected by the weaker Swedish krona.

The labor market in our region continues to be strong. The level of unemployment continues down and domestic immigration to our region is positive. The commute between Denmark and Sweden can improve further, and I'm looking forward to that day when we can have a reviewed governmental agreement between the countries. If we can make it even easier to live in 1 country and work in the other, that will give the labor market several advantages.

Acquisitions, not the wireless at the moment for the quarter, just a piece of land, that's Tomaten 1 in Lund, 7,000 square meters land where we already are active with our first project at this property for Inpac. The picture shown is the next project.

And over to you, Arvid, for financials, rapid changes and higher costs, but I think we can manage well also in these times.

[Arvid Liepe, executive]

Thank you, Ulrika. Looking at the next slide, the income statement for the quarter is basically a repetition of what you have already said in Ulrika. Rental income up 22% to SEK 971 million, operating surplus up to 20% to SEK 667 million, and income from property management down 2% to SEK 457 million on the back of rising financial costs and in a few slides, we'll dig a bit deeper into that topic.

Ulrika also elaborated on the changes in values, minus SEK 28 million during the quarter. We all said negative value changes in our derivatives portfolio, minus SEK 99 million. And bear in mind that, that this type of development and the interest rate swap development can actually differs during the quarter. So changed market rates explains the change in value of the derivative. All in all, profit for the period of SEK 255 million.

Looking at the balance sheet, you could see that versus 12 months previously, the investment properties have increased in value by SEK 5.1 billion. And at the same time, equity has increased by almost SEK 1 billion or SEK 0.9 billion, and our borrowings have increased by SEK 3.9 billion in a 12-month perspective.

That translates to key numbers on the next slide, where the equity assets ratio now stands at 41.1%. And our LTV is 48.5% as of end March. The interest cover ratio is 3.4x and that's measured in the quarter individually, so to speak. On a 12-month rolling basis, the interest cover ratio is 4.5x. EPRA NRV stands at SEK 92.08, which is up 7% adjusted for dividend versus 12 months previously.

On the next slide, we see the historic development of EPRA NRV. So it continues up in the quarter. And since 2009, the average annual growth has been 16% adjusted for dividends. Looking at the historical -- or the 5-year development of financial ratios, the equity assets ratio on the right-hand side has strengthened gradually over a 5-year period to 41.1%. The loan-to-value has gradually gone down to 48.5%. And as you can see on the left-hand side, the interest cover ratio with increasing interest rates over the past year has gradually come down. We'll elaborate a little bit more on the interest rate in a couple of slides.

Important to look at our net debt in relation to EBITDA. And despite the uncertain or especially in these uncertain times on the financial markets, it's good that we also, in this quarter, actually can see a strengthened ratio. So this ratio, net debt-to-EBITDA is 10.8x as of end March, slightly stronger than at the end of 2022. Our sources of financing, look, as you can see on this slide, we are now down to 9% of our financing from the bond market, just a touch lower than the quarter previously. Half of our financing basically comes from bilateral bank agreements with Nordic banks. And just over 40% of our financing comes from the Danish mortgage loan system.

Looking at the structure of the loan portfolio, you can see the details on this slide. Average interest rate has increased quite a lot during the quarter. It's now 3.21%, excluding costs for credit agreements, 3.26%, including such costs. On the loan maturities, the SEK 820 million, which mature in 2023 are all bond loans maturing in Q3 and Q4, respectively. The average fixed interest period has gone up slightly versus year-end 2022 and now is -- that stands at 2.3 years, and the average loan maturity is 6.2 years.

The change in the average interest rate in our portfolio must be seen in the perspective of the STIBOR and CIBOR development. Here you see 2 graphs of that on the left-hand side, the development of STIBOR and CIBOR since the beginning of 2022. And on the right-hand side, the development during Q1 2023. We have our STIBOR fixings for our loans at a number of different points in time during the quarter. So when looking at the effect on our average interest rate, it's important to note that STIBOR during Q1 2023, while the average STIBOR was 86 basis points higher than the average STIBOR during Q4 2022. So that is, of course, driven the very largest part of the increase in our average interest rate during the quarter.

In addition to that, we've had an effect of expiring swaps at attractive levels. We've entered some new swaps at obviously higher levels than previously. And we've also taken up some new bank debt at slightly higher margins than previously. So in addition, those different effects have contributed to the increase in the average interest rate during the quarter.

On the next slide, we see the graphs of our interest rate sensitivity. And I think it's worthwhile noting on the right-hand graph, the effect of further increase in market rates on our interest cover ratio and taking the starting point and March and where STIBOR was at that point in time. Given our loan portfolio and our interest-based swap portfolio, we can actually cope with a 3.5 percentage point increase in the underlying market rate before our interest cover ratio goes down to 2.0x, which is our stated objective not to go under. So I think we still have a good stability to cope with the financing costs.

Looking at the fixed interest periods and loan maturities in a historic perspective, loan maturities on the right-hand side have remained very stable in a 5-year perspective around 6 years. And the fixed interest period has gone down somewhat, but in the quarter, increased again as we've entered into some new swap agreements in line with our financial risk management policy.

And my final slide is the available funds. The graph shows unutilized credit facilities plus liquid funds and that combined is SEK 3.3 billion as of end March. We think that is a good level and gives us a good financial stability. But of course, unutilized credit facilities also come at a cost. So that, of course, also to some extent, affects our financial net.

With that, I hand back the word to you, Ulrika.

[Ulrika Hallengren, executive]

Thank you, and I'll give you an update on sustainability. We continue with our certification program, 17 properties certified during Q1, 2 of them are on vacations and 15 are new. Our goal is that 95% of the Swedish offices will be certified in '25, and we are on a good way there. Level Gold is the normal standard in new build. Silver is okay for the elder stock. And once in a while, we can accept Bronze. In this case, it fits the property name, Bronsdolken, but that's not the reason here. It's a tenant who have some specific demands, and that's why we have to accept bronze in that case.

We also continue with energy savings. Sometimes we invest to improve and sometimes we just use our skill. We bought a support in Malmo, and thanks to our skilled operational organization. We have saved 35% district heating and 17% electricity compared to last year without investments, let's point out that.

Let's go to investments in progress. First, a quick look into my schedule for times this spring spend with a helmet on my head. 4 groundbreaking ceremonies, 2 in Helsingborg with our tenants Nederman and SpringHill, 1 in Lund with Inpac and 1 in Malmo, Blackhornet. Even if digging isn't my specialty, this digging have definitely nothing to do with the real effect of the project, but it has some kind of effect together and have a ceremony showing that we will together make this happen and that we together also are really committed to achieve what we have promised. The municipality, we as landlord, our tenant and our contractors.

In Q1, we have invested SEK 391 million, and it remains SEK 2,556 million to invest in approved projects. Construction cost continues to stabilize, and we even in down somewhat. Important for future growth is that we can continue with our investment in projects that we are able to do adjustments for customers and not at least to keep up property maintenance, this will create our value ahead.

A quick review of our largest projects in Hyllie, Blackhornet 1, the project we call VISTA has just started at site. This building will be the new entrants from Copenhagen to Malmo, a large mobility hub with 400 parking spaces. And on top of that, there will be 16,600 square meters office and restaurants. We have a possibility to call off the project in 2 phases. Really good attention for offices, I must say. Mobility is of great importance. Train, buses and bicycles are really good things. But if you can park your electric car in the same building and just take the elevator up to your office that has some extra potential. Estimated completion for Mobility Hub in Q4 '24 and the offices in Q4 '25. In total, at least 5.7% yield on cost.

In Lund, at Science Village, right between the research facilities, MAX IV and ESS, we are in full action with our project space, where Oatly will be the first tenant with the research development team. We invested SEK 244 million and completion starts in Q4 '23. Continues to follow the plan, and this will probably be our second 0 carbon dioxide certified building. We had a possible tenant visiting this project just a few weeks ago, and they told us that this was the most beautiful building they have ever seen. I will really believe them when they have signed the lease, but at least I like them spreading the words.

Posthornet 1, Phase 2, a new build office of 9,900 square meters right beside of Raffinaderiet and the Central Station in Lund, investment, SEK 448 million, and completion is planned to Q4 '25. Procurement is completed and production start is planned later this year. At Tomaten, we will build a facility for Inpac 6,400 square meters in the first phase, and we invest SEK 137 million, including buying the land from the municipality. Yield on cost approximately 6.5%. This project also gives us an opportunity to continue to develop [indiscernible] in Lund, good combination, completion in Q2 '24. For Nederman, in Helsingborg with a 20-year lease, we are ongoing with this project of 25,000 square meters at Rausgård 21. Investment SEK 420 million and completion in Q3 '24, a long-term investment that also gives a good boost to the surroundings.

Our project at Huggjärnet 13, now 80% pre-let and both phases are in full production, a multi-tenant 36 facility will start of completion in Q2 '23. And Snårskogen 5, the first project is for DOKA a 2,200 square meters investment, SEK 60 million and a completion in Q2 '23. And next one of the same properties, Snårskogen 5, we also start a project for Rollco, 3,600 square meters investment, SEK 78 million and completion in Q3 '24. At Plåtförädlingen 15, we invested SEK 11 million for Springhill and room for 1 more tenant, so 75% pre-let, a very short production time, so completion in Q4 '23. And a new one, Sunnanå 12:54, 100% pre-let, 17,000 square meters logistic and completion is planned in Q1 '25.

Now for some of the ongoing portfolio. Let's also mention something about future investments. Very important for us to have a plan a long time ahead so that we are prepared when opportunities arise. This is for possible projects in Lund and Helsingborg. I think you've seen some before, Vetskapen 1 at Science Village area, 16,000 square meters at Ideontorget just beside the train station, and we can split this into several phases. Polisen 7 offices in the city center of Helsingborg at Vasterbro in Lund, where we can develop somewhat 70,000 square meters in the future. Zoning plans are approved for the first 3 projects.

Next slide, Börshuset what I think will be the most -- the best possible offices in Malmo in the future. Discussions with possible tenants is ongoing as well as design phase. The latest -- the last tenant moves out in June. So after that, we can start the project, if everything works out the way you want possible completion in Q3 '25. And a few other possibilities from the Industrial and Logistics segment to Tomaten 1 additional 2,500 square meters. Bilrutan 5 in Helsingborg in Landskrona, 14,000 square meters logistic just beside the highway. And we have also land at Örja and Pedalen in Landskrona, close to Bilrutan. And this project Sunnanå 12:26 in Malmo is a new one, approximately 4,000 square meters.

Here are some examples of what we can call fill-in projects on existing land. But when demand increase, we can add on value. These possibilities are all in Malmo, Stenåldern, Benkammen, Spännbucklan and Hindbygården. And of course, we continue in exhaustible with Nyhamnen. The light blue buildings in this picture are from our running portfolio, and the dark blue is building possibilities on our land or where we have land allocation agreement with the municipality of Malmo since many years. One example in that area is Slagthuset. We own the land and have planned permission for housing, but we think that the area needs a higher density, and we will work for that offices at best location is our goal, of course. And some other projects in this area, both from Hamnen and Dockan and a mix of approved plans, ongoing plans and applications for [indiscernible] plant.

Let's summarize Q1 '23, once again, record high rental income, plus 22%, operating surplus plus 20%. Positive net letting, increased occupancy rate, higher financial costs and our stable balance sheet and access to liquid funds gives us the opportunity to continue with our investments. And by that, we are open for questions.

[Operator]

[Operator Instructions] The next question comes from Markus Henriksson from ABG Sundal Collier.

[Markus Henriksson, analyst]

First off, a lot of companies nowadays do talk about divestments to reduce debt. What's your view on these both situations? Are you looking into divestments or acquisitions currently?

[Ulrika Hallengren, executive]

We always look at possible acquisitions and try to be picky as usual, choosing the right ones divestment. It's not our goal at the moment.

[Markus Henriksson, analyst]

Have you seen any deals, transactions out for sale here in the beginning of '23, either in office segment or in the logistics that you think is representative of your portfolio?

[Ulrika Hallengren, executive]

Not that I can think of, no.

[Markus Henriksson, analyst]

Okay. Moving to projects, you discussed a lot that question on Posthornet 1. It's quite some time before completion, but could you give us an update on potential lease discussions and what yield on cost you hope to achieve in that project?

[Ulrika Hallengren, executive]

Yield on cost close to 60%. And yes, positive discussions ongoing, no signed leases yet, but the location is very good. And also the quality is -- so I'm totally secured that we will fill that up in a good way. And also, the rents in Lund are moving to very decent levels.

[Markus Henriksson, analyst]

What is a decent level in Lund nowadays?

[Ulrika Hallengren, executive]

I think that for new build projects with good quality in right location, you should be quite close to 3,000.

[Markus Henriksson, analyst]

One last question. Last quarter, I think you had 8% CPI assumption in your valuations. And many other companies are currently at 4%. What -- do you have any view here that you want to share with us?

[Arvid Liepe, executive]

I think when looking at the assumptions in the valuation models, you need to factor in all assumptions, not just highlighting one assumption. So if you look at how our external appraisers put in assumptions in their models as of end 2023 -- sorry, end of 2022. The indexation assumption was 8%, but it had a different assumption for the market rent development, meaning that not necessarily everything would feed through. So I mean, you really have to look at the market trend expectations, the indexation expectations, the cost expectations as well as potential yield requirement changes and potential changes in the discount rate at which you discount the foreseeable cash flow.

[Ulrika Hallengren, executive]

But overall we -- yes, but we can say it if you look a year back and look at the reports of how much the yield requirements have moved, I would say that we have followed that line, but we started a bit earlier.

[Markus Henriksson, analyst]

So I should interpret that answer as that you are quite cautious on some of the other metrics. That's what you're trying to clarify?

[Arvid Liepe, executive]

Yes, we feel that we are not stretching valuations in any way.

[Operator]

The next question comes from Erik Granström form Carnegie.

[Erik Granström, analyst]

I have a few questions as well. If we start by looking at the development of income from property management, it did come down a little bit year-over-year now in Q1. I know that you don't give any guidance, but given what you know now of the [indiscernible] development and so on and financial costs. Do you think that you could reach a growth in income from property management this year versus last year? In '22, you did achieve a little bit of growth, even though we saw increasing interest rates. So what do you think is doable this year?

[Arvid Liepe, executive]

Well, as you know, we don't make any forecast apart from what you can find operationally in the property table in the report as well as the details on our debt portfolio. But basically what you need to assess for yourself is, of course, which underlying market interest rate development, do you expect for the rest of the year. That will be the determining factor. As you can see in the report, just published the core operations developed strongly. So the question mark is the rest of the year, what would happen to market interest rates?

[Erik Granström, analyst]

And in terms of your comment during Q1 with some expiring swaps as well as new swaps. Do you expect to do a large proportion of that throughout the year as well? I believe you have SEK 2 billion expiring this year in terms of swaps that we should also expect that cost to increase in general?

[Arvid Liepe, executive]

Yes. You will have an effect of that during the rest of the year as well. To elaborate a bit on our interest rate hedging policy, what we've said or stated in our policy is that we want to have a certain proportion of interest rate maturities a minimum and a maximum level during a period of 0 to 1 year, 1 to 2 years, 2 to 3 years, et cetera. And that basically means that in any given year, some interest rates will -- or some interest rate swaps will expire and we would gradually enter into some new interest rate swaps. So that, of course, will have an effect as well.

[Erik Granström, analyst]

And then my final question regards the maturities of the bond of SEK 820 million Arvid that you mentioned, I believe you said it was in Q3-Q4.

[Arvid Liepe, executive]

Correct.

[Erik Granström, analyst]

Have you started sort of thinking and the discussions of how to refinance this? Is this something that is already sort of completed and done? And are you looking to do this in terms of secured financing through the banking system? Or would you like to go on into the capital market and sort of try the cost there at this point?

[Arvid Liepe, executive]

If the one market functions the way it does today, it's likely that we will repay those bonds using existing unutilized credit facilities with banks. At the same time, we follow the development in the bond market because -- of course, ideally, we will also, in the future, be able to be active in the bond market on reasonable terms, at least. You saw some improvements in the bond market in February. Then we had some financial market turbulence with Silicon Valley Bank and Credit Suisse, et cetera. And it's a number of months before the maturity of these bonds. So if the bond market recoveries, stabilizes, improves, we may be active in the bond market again.

[Erik Granström, analyst]

And my final question is regarding on utilized credit facilities. I believe they came up a little bit during the quarter versus year-end, meaning that you're sort of increasing your capacity. But you also mentioned that, that obviously comes with the cost. What's your thinking for the rest of the year? Should we expect unutilized credit facilities to continue to increase throughout '23? Or do you feel that this just north of SEK 3 billion is sufficient?

[Arvid Liepe, executive]

North of SEK 3 billion is sufficient. And the development during the rest of the year, of course, depends a bit on what will happen in the bond market, will we use part of those SEK 3.3 billion to repay the SEK 800 million. And obviously, of course, will we see any acquisition opportunities? What will be the level of project investments actually end up with towards the end of the year? We have, as you know, a dividend payment in a few days' time that will, of course, also affect credit facilities utilization.

[Operator]

The next question comes from Lars Norrby from SEB.

[Lars Norrby, analyst]

I have a question about the impact from the economy. I mean, you're reporting high growth in rental income, high growth in net operating income. And for that matter, positive net letting. Do you see any kind of impact from a slowing economy on your customer base, your tenants?

[Ulrika Hallengren, executive]

I would say that some tenants, what we have seen lately the last years, I would say, is that tenants want to -- they need to make the workplace even more attractive so that they can get their employees back to the workplace. And that continues good, very high focus on that. But we also see, of course, examples of can we do this more efficiently in any way. But all these kind of actions taken from our customers is a good thing because that makes them more attractive for the future. So I think as long as we follow these needs, but we see very different kind of needs because the market consists of different kind of businesses. So I think of course, I expect that we will see also examples of business that are really struggling ahead. But that is a part of it. And I don't see any large signals on that at all.

[Lars Norrby, analyst]

And how about remote working? It's a factory in Stockholm. How much of a factor is it in Malmo or Copenhagen? And in what way does it affect your business?

[Ulrika Hallengren, executive]

I think that a combination is here, of course, but also that maybe we had in this region have a bit of a better possibility to get to work without taking too long time for that. And to working together is an attractive product. What I is a bit worried about is that when we see -- I think I mentioned that last report maybe that in the last Microsoft report about remote work, employees use the same reason why they choose to work from home and why they go to the office. I choose to work from home because I want to work focused. I choose to go to work because I want to work focused.

And if you ask -- if you don't or able to give your employees the kind of areas needed for doing the work at the workplace, I think that might be a challenge for the future. If you think that all the areas should consist of open areas where you can do nice things and needs and rate and bring coffee and such. You have to also bear in mind that you have to give the opportunities to actually work focused at your workplace.

You see examples from these kinds table tennis. You know how much that sounds? That's really disturbing sound for many people. So you have to -- I know that it's important, of course, that you want to achieve attractive areas, but attractiveness consists of different things, and you have to combine that on your workplace, I think. And I think we see more of that now. So also more closed areas and more focus areas and even single rooms and such that are increased in a bit.

[Lars Norrby, analyst]

Final question from me is regarding transactions and property values. You're reporting virtually 0 value changes in the quarter. At the same time, transactions in the market, talking about the total Swedish market, which you mentioned in your report are down sharply in the first quarter. Doesn't this create quite a lot of uncertainty about property values when liquidity is not there in the market? And how do you feel about that? And how is it reflected in your valuations?

[Ulrika Hallengren, executive]

Of course, even if the valuation is minus SEK 28 million, and that is close to 0. So that doesn't mean that it's no changes between properties. So something is up and something is down. But as mentioned before, we started a bit earlier than we have seen many others on the way up with the market yields for example. And of course, these market parts have been -- we have constant discussions with our appraisers, of course, when we do our valuations also in this quarter. I think we saw in Q4, for example, we have industrial segment were valued down a bit more than the office part. But close to 0 now doesn't mean that we don't have any changes in the total -- between the properties worth mentioning.

[Arvid Liepe, executive]

I take your point that a very low transaction volume, of course, makes it more tricky to find relevant comparisons in, so to speak, real transactions. What we can do is, of course, to focus on continuing to generate a decent cash flow that we can actually affect and at some point in time, that will feed through also in valuations.

[Operator]

The next question comes from Danske Bank.

[Arvid Liepe, executive]

If there's no question from Danske Bank, I received a question via e-mail here relating to the webcast. And it comes from David Flemmich at Nordea. The first part of the question relates to interest rate hedging. And I believe we've actually already answered that part of the question previously during the Q&A session.

The second question is, can you elaborate a bit on the development of bank margins in recent quarters? What is the average margin in your portfolio?

Bank margins in our bilateral bank agreements are moving slightly upwards. I'd say, a bit over a year ago, a 3-year bank credit would probably have cost us about 120 basis points in margin. And currently, it would probably cost us in the region of 150 basis points. So there's been an increase during the year, although not at all as dramatic as in the bond market. The average bank margin in our portfolio without having the exact number in my head, I would say that that's it's probably around 120 basis points on average, maybe a touch below that.

So I hope that's answers your question, David.

[Operator]

There are no more questions at this time. So I hand the conference back to the speakers for any closing comments.

[Ulrika Hallengren, executive]

Okay. So thank you for today. And of course, you're always welcome with additional questions in other forms than this and [ that's ].

[Arvid Liepe, executive]

Okay. Wish you all a good day. Thank you very much.

[Ulrika Hallengren, executive]

Thank you.